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Homeowner personal liability insurance coverage explained

Homeowners Personal Liability Insurance Coverage

Personal liability is a standard for any home insurance. While important, it’s also one of the least understood coverages by homeowners. In this article, we’ll tackle everything there is to know about your personal liability insurance by answering 6 key questions:

  1. What is personal liability insurance?
  2. How can it protect you?
  3. Who or what is covered?
  4. What isn’t covered?
  5. How much personal liability coverage do you need?
  6. How much does personal liability insurance cost?

What is Personal Liability Insurance?

Personal liability

Personal liability refers to the legal accountability of a person. What you can be held liable for depends on your state laws. Though it’ll most likely end up in a lawsuit and massive financial losses if you’re found guilty.

Personal liability insurance

Personal liability insurance is a type of coverage that protects your assets in case you are found liable for something. It is typically included in home insurance and other residential policies such as renters and condo insurance. You can also buy it separately as a standalone policy.

Personal Liability in Home Insurance – How It Can Protect You

The personal liability section of your home insurance protects against two things:

  • Personal injury
  • And property damage

If you or anyone covered by homeowners insurance causes accidental injury to another person or damage to their property, personal liability insurance can help pay for the following:

Legal expenses

If the person who sustained injury or damage sues you, your insurer can provide financial assistance for your legal needs.

Replacement costs

Your insurance can cover the replacement of damaged properties you are liable for.

Medical bills

If the person requires medical care for sustained injuries, your insurer can pay for their bills.

Settlement costs

If the resulting injury causes a person to (1) lose salary from missed work or (2) endure pain and suffering, then your insurance company can help with settlement costs if they take legal action.

Death benefits

Your insurer can also provide death benefits for the family of a person who dies as a direct result of an accident in your home or property.

Personal liability insurance shoulders these expenses so you wouldn’t have to pay for them out of pocket. We’re not just talking about a few hundred or thousand dollars – but the possibility of losing hundreds of thousands of dollars to a lawsuit and medical expenses.

Understanding Your Personal Liability Insurance

Who is covered?

Anyone who is insured by a home insurance policy is basically covered for personal liabilities. These include:

  • The policyholder – that is, the legal owner of the home.
  • The insured or people besides the policyholder who falls under the umbrella of the insurance policy. In home insurance, these include household residents (usually family members). However, some policies may also cover people working in your home (such as caregivers).

Let’s say you or your child accidentally knocks over a visiting neighbor and she sprains her ankle from the fall. Your insurance can pay for your neighbor’s treatment.

What else does it cover?

Personal liability insurance also covers bodily injury or property damage caused by the following:

  • Personal belongings, home contents, or objects within your property. For example, if a tree in your yard crashes into your neighbor’s fence, your insurance can help pay for its replacement.
  • Common house pets like dogs or cats. When your dog bites the mailman while delivering packages to your home, your policy can cover his medical expenses.

Injuries or damages don’t have to happen at home. Insured parties are still covered for personal liabilities that may happen outside your property. For instance, if your pet dog chases the mailman and bites him several blocks further, personal liability insurance can still apply.

What is not covered?

Most homeowners insurance will not cover injury or damages caused by the following exclusions:

  • If there is intent to cause injury or property damage
  • Home tenants such as renters – that is, if you’re renting a portion of your home
  • Owned vehicles

People who are insured under the same policy also can’t file claims against the coverage. If a household member slips on your staircase and gets injured in the process, your personal liability insurance isn’t going to cover it.

How Much Personal Liability Coverage Do I Need?

Most home insurance policies provide a minimum personal liability insurance worth $100,000. Unfortunately, it won’t be much help. If someone sues you for $300,000 worth of damages and you only have $100,000 coverage, you’re left with a $200,000 gap. Medical expenses that arise from serious injuries can easily burn through your coverage limit, and cost you upwards of $100,000.

Either way, the risks are too great. You will have to spend for everything else out of pocket. And if you don’t have the cash, you may have to liquidate your most valuable assets or worse – sell your home. Increasing your personal liability coverage to $300,000 can be helpful. But if you want to protect your assets and minimize losses, we suggest getting the highest possible coverage you can afford. You should also consider getting an umbrella policy to further bump it up.

What is an umbrella policy?

An umbrella insurance policy lets you increase limits for several liability policies – including your personal liability. It also covers claims which are typically not included in underlying policies. Essentially, an umbrella policy:

  • Broadens the coverage of your personal liability insurance
  • Increases your coverage limit

However, there’s a catch – two, in fact.

  1. You can’t use it until after you’ve exhausted the coverage limits of your homeowners insurance. In the example cited above, an umbrella policy will only “activate” once you’ve used up the $100,000 personal liability coverage.
  2. Most home insurance companies won’t offer you an umbrella policy unless you get a certain amount of liability coverage for your home and car insurance.

Good thing umbrella policies are relatively cheap considering the coverage they provide. You only have to pay anywhere from $150 to $300 for every $1 million worth of coverage.

How Much Does Homeowners Insurance Liability Cost?

Increasing the limits of your personal liability coverage is surprisingly inexpensive. If you compare it with other types of coverage offered by the same company, you’ll find that the cost of increasing it doesn’t add much to the premium.

The main takeaway is that accidents can happen anytime. Being liable for even just one of them can place everything you’ve ever worked hard for on the line. If you want to protect your assets, make sure you’re adequately covered from personal liabilities.

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